February 2010 -- The
consensus among economists is that China’s post-1978 market reform policies
have produced one of the world’s greatest economic success stories. Some
believe that China is now capable of serving as an anchor for a new (non-US
dominated) global economy. A few claim that the reform experience demonstrates
the workability (and desirability) of market socialism. This paper is critical
of these views.

Its main conclusions are as follows: first, the reforms have led to the
restoration of capitalism, not a new form of market socialism. Second, the
reforms have produced an increasingly exploitative growth process, one that
generates considerable wealth for a minority at unacceptably high cost for the
majority. Finally, the reforms also produced a growth process whose logic led
it to become enmeshed in, and dependent upon, a broader process of
transnational restructuring, one controlled by transnational capital. As a
result, China is not only incapable of serving as an anchor for an alternative
global economy, its accumulation dynamics actually contribute to the
strengthening of existing structures of power and the global imbalances and
tensions they generate.

* * *

Interest in the post-1978 Chinese market reform experience remains
high and for an obvious reason: China is widely considered to be one of the
most successful developing countries in modern times. Adding to the interest is
the Chinese government’s claim that this success demonstrates both the
workability and superiority of ‘market socialism.’

Many economists, especially those critical of neoliberalism,
are encouraging other countries to learn from China’s gradual, state controlled
process of marketization, privatization, and deregulation of economic activity.
A few share the Chinese government’s view that China has indeed pioneered a new
type of socialism.

A significant number also believe that because of its size
and pattern of growth, China is capable of anchoring an alternative international
economic system, one that offers other countries the opportunity to reduce
their dependence on the US market and established global institutions. In fact,
many believe that China’s economic performance during the current world crisis
demonstrates that it is now ready, willing and able to play this role.

Unfortunately, as argued below, there is little justification
for this positive perspective on the Chinese experience. First, regardless of
what Chinese leaders say, China is not pioneering a new form of market
socialism—rather the reforms have led to the restoration of capitalism. As a
result, Chinese internal dynamics are clearly hostile to the creation of any
anti-capitalist alternative. Second, the reforms have produced an increasingly
exploitative growth process, one that is generating considerable wealth for a
small minority at unacceptably high cost for the great majority of Chinese
working people.

Finally, China’s growth process is now structurally enmeshed
in, and dependent upon, the operation of a broader process of regional and
international restructuring, one controlled by transnational capital. As a
result, China is not only incapable of serving as an anchor for an alternative
global economy, its accumulation dynamics have actually contributed to the
strengthening of existing international structures of power and the global
imbalances and tensions they generate. In fact Chinese government policy
responses to the current crisis have only served to intensify international competitiveness
pressures with negative consequences for most working people.

The stakes are high in this engagement over the nature and
significance of the Chinese experience. Progressive support for the Chinese
reform experience encourages, consciously or unconsciously, the mistaken belief
that meaningful development or even socialism can be achieved through the use
of markets and a closer integration with global capitalist accumulation dynamics.
Chinese workers, in growing number, are beginning to challenge Chinese state
policies, not just in response to the exploitation they experience but also
because of their renewed interest in socialism itself. Therefore, it is vital
that we develop an accurate understanding of the Chinese experience, both to ensure
that efforts at social transformation in other countries are not compromised by
false understandings of the dangers of markets and capitalist imperatives and
to provide support for those seeking socialist renewal in China.

China’s
structural transformation

In
1978, two years after the death of Mao Zedong, the leadership of the Chinese Communist
Party, led by Deng Xiaoping, decided to radically increase the economy’s
reliance on market forces. The leadership claimed that such a step was
necessary to overcome the country’s growing economic problems which were
alleged to be caused by Mao’s overly centralized system of state planning and
production. However, although political and economic changes were definitely
desired by the majority of Chinese, Deng and his followers greatly overstated
the severity of existing problems and, more importantly, ignored popular calls
for an exploration of other, non-market reform responses.

Once begun, the market reform process quickly became
uncontrollable.[1] Each
stage generated new tensions and contradictions that could only be resolved
(given the leadership’s opposition to worker-community centered alternatives)
through a further expansion of market power. The ‘slippery slope’ of market
reforms thus led to an eventual privileging of market dynamics over planning,
private ownership over public ownership, and foreign enterprises and markets
over domestic ones.

Economic transactions are now overwhelmingly shaped by
market prices. The share of retail sales made according to market determined
prices rose from 3 per cent in 1978 to 96.1 per cent in 2003. For producer
goods, the share rose from 0 per cent to 87.3 per cent over the same period.[2]

The growing industrial dominance of the private sector is
also clear. In 1978, state owned enterprises accounted for all value added in
China’s industrial sector (defined as mining, utilities, and manufacturing). By
2003, the private sector share was larger than the state sector share: 52.3 per
cent to 41.9 per cent.[3]
But even this diminished state share overstates the actual ‘economic weight’ of
state production.

Recognizing that many state enterprises are now jointly
owned by private interests—either through joint venture or stock ownership—the
Organization for Economic Cooperation and Development (OECD) classifies state
firms as either directly or indirectly controlled depending on whether the
state share of paid-in capital is greater than 50 per cent of the total. In
2003, directly controlled state enterprises accounted for only 22.9 per cent of
industrial value added—less than a quarter of the total.

The declining strategic importance of the state sector
becomes clearer if we narrow our focus to manufacturing. The OECD has divided
China’s manufacturing sector into two groups. The first includes the 5 industries
that continue to be dominated by state production: petroleum processing and
coking, smelting and pressing of ferrous metals, smelting and pressing of
non-ferrous metals, tobacco processing, and transport equipment.

The second and larger group (which accounts for over 75 per
cent of manufacturing value added) is dominated by private enterprise. This
group is made up of 23 different manufacturing industries, including food
processing, textiles, garments, chemicals, medical and pharmaceuticals,
plastics, ordinary machinery, special purpose machinery, electrical equipment,
and electronic and telecom equipment. According to the OECD:

In 1998 the private sector produced the higher share of
value added in only 5 out of these 23 ... manufacturing industries. By 2003,
this was true for all 23 of these industries. Moreover, in half of them,
private firms produced more than three-quarters of output. Overall in these 23
industries, the private sector employs two-thirds of the labor force, produces
two-thirds of these industries’ value added and accounts for over 90 per cent
of their exports.[4]

State-owned enterprises do remain important and the Chinese
state still exercises control over critical sectors of the economy, but these
areas of strength are now largely limited to finance and activities supported
by state ownership of natural resources. Thus, in 2006, three state oil
companies accounted for half of the earnings of the 160 largest ‘state owned
monopolies and oligopolies.’ In fact, ‘Up to 80 percent of the year-on-year
increase in profits realized in 2006 by all Chinese enterprises were
attributable to ... monopoly financial groups or monopoly firms in the areas of
oil and petrochemicals, electricity, coal and metals.’[5]

Foreign capital also enjoys a greatly strengthened role in
the Chinese economy. The share of foreign manufacturers in China’s total
manufacturing sales grew from 2.3 per cent in 1990 to 31.3 per cent in 2000.[6]
Perhaps more revealing, a 2006 government report concluded that foreign capital
holds a majority of assets in 21 out of 28 of the country’s leading industrial
sectors.[7]

One consequence of this development is that China’s economic
growth has become increasingly dependent on foreign produced exports. Foreign
firms dominate China’s export activity: their share of China’s total exports
grew from 2 per cent in 1985 to 58 per cent in 2005 (and stands at 88 per cent
for high tech exports).[8]
Moreover, these exports are increasingly being produced by 100 per cent foreign
owned firms. A case in point: the share of computer related exports produced by
100 per cent foreign owned firms increased from 51 to 75 per cent over the
period 1993-2003.[9] As
a result of these trends, the ratio of exports to GDP has climbed from 16 per
cent in 1990 to over 40 per cent in 2006.

In sum, while state planners and enterprises continue to
play an important role in China’s economy, state power has been used to shape
an accumulation process that is now dominated by private (profit-seeking)
firms, led by foreign transnational corporations, whose production is largely
aimed at markets in other (mostly advanced capitalist) countries. Regardless of
how one might evaluate the performance of the Chinese economy, it is hard to
imagine how this development can be viewed as laying the foundation for an
alternative to capitalism, at either national or international levels. Rather
it points to the conclusion that capitalism itself has been restored in China.

The
social consequences of China’s market reform policies

Most analysts are no longer interested in whether China is
socialist. Rather, they are concerned with whether China’s growth and
transformation has led to ‘successful’ economic development. And, for a
majority, the answer is an unequivocal yes. This answer appears largely based
on a consideration of a limited, but important set of indicators, especially
rates of growth of foreign investment, exports, and GDP. However, if we broaden
our notion of development to include measures of working class well-being, the
answer tragically changes. The reality is that China’s market reform polices
have created a growth process underpinned by increasingly harsh working and
living conditions for the great majority of Chinese.

Perhaps
most surprising is the fact that the country’s rapid growth has failed to
generate adequate employment opportunities. According to the International
Labor Organization (ILO), total urban (regular) manufacturing employment
actually declined over the period 1990-2002, from 53.9 million to 37.3 million.[10]
While there was a small increase in total urban employment, almost all the
growth was in irregular employment, meaning casual-wage or
self-employment—typically in construction, cleaning and maintenance of
premises, retail trade, street vending, repair services, or domestic services. More
specifically, while total urban employment over this thirteen year period grew
by 81.7 million, 80 million of that growth was in irregular employment.[11]
As a result, irregular workers now comprise the largest single urban employment
category.

The
reform process has taken an especially heavy toll on state workers. According
to Chinese government figures, state-owned enterprises laid off 30 million
workers over the period 1998-2004. As of June 2005, 21.8 million of them were
struggling to survive on the government’s ‘minimum living allowance’—the basic
welfare grant given to all poor urban residents. In June 2005, this allowance
was approximately $19 a month.[12]

There
has been job growth in the private sector, especially at firms producing for
export. However, most of the new jobs are low paid with poor working
conditions. ‘Even after doubling between 2002–2005, the average manufacturing
wage in China was only 60 US cents an hour, compared with $2.46 an hour in
Mexico.’[13] A
report on labor practices in China by Verite Inc., a US company that advises
transnational corporations on responsible business practices, found that ‘systemic
problems in payment practices in Chinese export factories consistently rob
workers of at least 15 per cent of their pay.’[14]
Workplace safety is an even greater problem. According to government sources,
about 200 million workers labor under ‘hazardous’ conditions. ‘Every year there
are more than 700,000 serious work-related injuries nation-wide, claiming
130,000 lives.’[15]

One critical but often overlooked explanation for China’s
manufacturing competitiveness is that approximately 70 per cent of
manufacturing work is done by migrants. Over the last 25 years, some 150-200
million Chinese were driven by economic conditions to move from the countryside
to urban areas in search of employment. As Hung Ho-Fung explains:

From the 1990s onwards, the deterioration of agricultural
incomes and demise of collective rural industries … forced most young laborers
in the countryside to leave for the city, creating a vicious cycle which has
precipitated a rural social crisis. China’s agrarian sector was not only
neglected, however, it was also exploited in support of urban growth. A recent
study has found that there was a sustained and increasing net transfer of
resources from the rural-agricultural to the urban-industrial sector between
1978 and 2000, both through fiscal policy (via taxation and governments
spending) and the financial system (via savings deposits and loans).[16]

Although the great majority of migrants moved legally, they
suffer enormous discrimination. For example, because they remain classified as
rural residents under the Chinese registration system, not only must they pay
steep fees to register as temporary urban residents, they have no rights to the
public services available to urban born residents (including free or subsidized
education, health care, housing and pensions). The same is true for their
children, even if they are born in an urban area.[17]

As a consequence, migrant workers are easily exploitable. Employment
conditions at Foxconn, a Taiwanese-owned electronics and computer parts
manufacturing subcontractor for firms such as Apple and Dell, are
representative. Foxconn employs over 200,000 workers in China, a majority in
Shenzhen (a major manufacturing center in south China). Its assembly line
workers in Shenzhen earn approximately $32 for a 60 hour work week (along with
company provided dormitory housing and meals). Apple-hired investigators of a
Foxconn plant that builds iPods found that mangers routinely used corporal
punishment to discipline workers, ‘and that workers labored more than six
consecutive days 25 per cent of the time,’ despite the fact that Chinese law
‘requires at least one day off each week.’[18]

The overall effectiveness of Chinese labor policies (which
are primarily designed to boost export competitiveness) is well illustrated by
recent trends in wages and consumption. Chinese wages as a share of GDP have
fallen from approximately 53 per cent of GDP in 1992 to less than 40 per cent
in 2006. Private consumption as a per cent of GDP has also declined, falling
from approximately 47 per cent to 36 per cent over the same period. By
comparison, private consumption as a share of GDP is over 50 per cent in Britain,
Australia, Italy, Germany, India, Japan, France and South Korea; it is over 70
per cent in the US[19]

As the Economist magazine
points out, ‘the decline in the ratio of [Chinese] consumption to GDP ... is
largely explained by a sharp drop in the share of national income going to
households (in the form of wages, government transfers and investment income),
while the shares of profits and government revenues have risen.’ Although the
share of income going to working people has fallen in many countries over the
past decades, ‘nowhere has the drop been as huge as in China.’[20]
A vicious cycle is at work: the lower the share of income going to workers, the
more economic forces reinforce the export orientation of the Chinese economy,
which encourages the implementation of new policies to suppress worker
earnings.

China’s
growth and industrial transformation has also generated great wealth, leading
to an explosion of inequality and the formation (or solidification) of new
class relations. An Asian Development Bank study of 22 East Asian developing
countries concluded that China had become the region’s second most unequal
country, trailing only Nepal. This is not surprising considering that over a
roughly 10-year period (from the early 1990s to the early 2000s) China recorded
the region’s second highest increase in inequality, again trailing only Nepal.[21]

While the results of the Asian Development Bank study are
significant, they do not adequately convey the real concentration of wealth
that has accompanied and motivated China’s market reform program. According to
the Boston Consulting Group, China had 250,000 US dollar millionaire households
(excluding the value of primary residence) in 2005. Although this group made up
only 0.4 per cent of China’s total households, it held 70 per cent of the
country’s wealth.[22]
According to Rupert Hoogewart, the publisher of an annual list of China’s 1000
richest people, the number of US dollar billionaires has grown from zero in
2003 to 260 in 2009 (more than in any
other country except the US).[23] And,
China’s ‘nouveau riche’ have not been shy about spending their money: ‘LVMH
Moët Hennessy Louis Vuitton, the world's largest luxury goods maker, plans to
open two to three stores a year in China, where sales are rising 50 per cent annually.
Financièr Richemont, the world's second-biggest, expects to quadruple sales in
China within five years by selling more Cartier jewelry and Piaget watches.’[24]

The Communist Party
has become increasingly concerned that widening income (and consumption)
inequalities are adding fuel to growing popular anger over deteriorating
employment, health, housing, and retirement conditions. And, with good reason:
the number of large scale ‘public order disturbances’ has steadily climbed from
58,000 in 2003, to 74,000 in 2004, 87,000 in 2005, and 94,000 in 2006.[25]
Particularly worrisome to the leadership is the increasingly effective strike
activity at foreign owned export factories (despite the fact that strikes
remain illegal in China).

With repression alone unable to stem the rising tide of protest, the Communist Party introduced a number of reform policies which were designed to ameliorate the worst excesses generated by China’s growth strategy without radically changing its orientation. Among the most important was a new Labor Contract Law in January 2008.[26] The law requires, among other things, that businesses provide their workers with a written contract (something that a majority of workers either do not have or have never seen) and premium pay for overtime and weekend work.

While the law has
generated a sharp increase in arbitration cases, its impact on employment
conditions has been limited.[27]
Many companies circumvent it by reducing their employment of ‘regular’ workers,
relying instead on workers provided by labor dispatch companies or increasing
their use of subcontracting relationships. Some companies now pay workers their
contracted salaries and respect vacation and overtime standards, but then
undermine worker gains by requiring workers to pay for company provided
dormitories and canteen meals. Some foreign owned companies are threatening to
shift production to a different location within or even outside of China if
workers press their demands too aggressively. Regardless, the Chinese
government, worried about the effects of the world economic crisis on corporate
profitability, began rescinding many of the law’s worker protections before the
year was out.[28]

A major reason that
many in the leadership of the Communist Party remain unwilling to support
fundamental changes in China’s current growth strategy, despite its negative
consequences for growing numbers of working people, is that they have been
among its biggest beneficiaries. Their ability to shape the reform process has
enabled them to use state assets for personal gain, place family and friends in
lucrative positions of authority in both the state and private sector, and
ensure that the rapidly growing capitalist class remains dependent on the
Party’s good will. This, in turn, has led to a fusion of party-state-capitalist
elites around a shared commitment to continue the advance of a capitalist
political economy with ‘Chinese characteristics.’

The results of this development are easy to see: many of the
children of leading party officials (known as the ‘princelings’) were appointed
to key positions in ‘China's most strategic and profitable industries: banking,
transportation, power generation, natural resources, media, and weapons. Once
in management positions, they get loans from government-controlled banks, acquire
foreign partners, and list their companies on Hong Kong or New York stock
exchanges to raise more capital. Each step of the way the princelings enrich
themselves—not only as major shareholders of the companies, but also from the
kickbacks they get by awarding contracts to foreign firms.’ Not surprisingly, more than 90 per
cent of China’s richest 20,000 people are reported to be ‘related to senior
government or Communist Party officials.’[29]

In sum, it appears that those driving China’s economic
strategy have been remarkably successful in using the reforms to shape an
accumulation process responsive to their interests. And, consistent with the
underlying capitalist nature of this process, their gains have come at ever
greater cost to the majority of Chinese working people. As a result, Chinese
leaders must now contend with an explosion of strikes and demonstrations. Regardless
of what happens, it is difficult to see on what basis progressives would want
to celebrate and promote China’s reform experience.

China’s
market reforms and transnational accumulation dynamics

Many analysts believe that the combination of China’s size
and pattern of growth, along with the (self-proclaimed) socialist orientation
of the leadership of the Chinese Communist Party, mean that China will soon be
capable of anchoring a new, more progressive international economic order. Some
believe that China’s ability to continue growing rapidly despite the severity
of the current global economic crisis demonstrates that it is now ready, willing
and able to play this role.

This belief tends to be buttressed by the following
reasoning: China can be expected to maintain high rates of growth for decades. Because
this growth is highly import dependent, it can support the export production
and thus economic growth of China’s trading partners (especially in East Asia
but also in Latin America and Africa). This vision of China as a powerful and
positive agent for international change is attractive but flawed. It is largely
sustained by the continued popularity of using a nation-state lens to
understand Chinese accumulation dynamics. However, the reality is that China’s
economic transformation is not occurring in a vacuum or solely in response to
Chinese initiatives.

East Asia’s economies, including China’s, are being linked
and collectively reshaped by broader transnational capitalist dynamics, in
particular by the establishment and intensification of cross-border production
networks organized by transnational corporations. As a result, China’s own accumulation
dynamics have become tied to dominant patterns of investment and trade, thereby
reinforcing rather than offering an alternative to them.

Most immediately, the expansion of cross-border production
networks has led to a significant increase in the trade dependency of all East
Asian economies. One indicator: the region’s export/GDP ratio grew from 24 per
cent in 1980 to 55 per cent in 2005. By comparison, the world average in 2005
was only 28.5 per cent.[30]
And, a growing share of this activity is now under the control of transnational
corporations; for example, they account for 73 per cent of Malaysia’s and 86 per
cent of Singapore’s exports of manufactures.[31]

More significantly, as a consequence of the operation of
these networks, a rising share of East Asia’s trade in manufactures is now in
parts and components. This is illustrated by the changing trade composition of
leading Southeast Asian countries (Indonesia, Malaysia, Philippines, Singapore,
Thailand, and Vietnam): the share of parts and components in the group’s total
exports of manufactures grew from 27.5 per cent in 1992-3 to 40.3 per cent in
2004-5.[32]
The import share of parts and components also grew substantially over the same
period, from 32.6 per cent to 48.5 per cent. Trends are similar for Taiwan and
Korea.

In addition, almost all the parts and components traded by
East Asian countries come from the same three industrial categories (with
identical national rankings of importance): electronics machinery, office
machines and automatic data processing, and telecommunications and sound
recording. Moreover, these parts and components are increasingly being traded
from one developing East Asian country to another; the intra-regional share of
parts and components trade rose from 37.8 per cent in 1992-3 to 55.6 per cent
in 2004-5. In short, East Asian export production (itself a growing share of
total national production) is increasingly narrowing not only to parts and
components, but to a select few operations in a select few industries in response
to the needs of transnational corporate controlled production networks.

China was not only pulled into this process of regional
restructuring, it has become central to its functioning. In the words of the
Asian Development Bank, ‘the increasing importance of intra-regional trade is
attributed mainly to the parts and components trade, with the PRC functioning
as an assembly hub for final products in Asian production networks.’[33]
China’s unique position as the final production platform in this transnational
structured regional production system is highlighted by the fact that it is the
only country in the region that runs a regional trade deficit in parts and
components.

As a consequence of this restructuring, East Asia’s overall
export activity has shifted away from the US and the European Union and towards
East Asia, and in particular China. China, on the other hand, has shifted its
export emphasis away from East Asia and towards the United States and the
European Union. Between 1992-3 and 2004-5, the East Asian share of China’s
final goods exports declined from 49.5 per cent to 26.5%, while the OECD share
(excluding Japan and Korea) increased from 29.3 per cent to 50.1 per cent.[34]
Thus, the mirror image of China’s surplus in trade with the US and the European
Union is its deficit in trade with East Asia.

As a result of this regional restructuring, China has become
the first or second most important export market for almost all East Asian
nations. This development has, as noted above, encouraged the belief that
China’s import dependent production will enable East Asian countries (and those
in Latin America and Africa that export commodities to China) to ‘uncouple’
from the US dominated international economic order. However, since this trade
activity largely involves an intra-regional trade of parts and components
culminating in China-based production with final sales largely directed to the US
and the European Union, East Asia’s overall dependence on developed capitalist
markets has actually grown stronger rather than weaker.

This outcome is illustrated by the following trends: the
correlation between the growth in East Asian intraregional exports and US
non-oil imports increased from.01 during the 1980s, to .22 during the 1990s,
and .63 during the first half of the 2000s. The correlation between the growth
in East Asian exports and G-3 non-oil imports rose from .21 during the 1980s,
to .34 during the 1990s, and .77 during the first half of the 2000s.[35]

This
regional perspective enables us to see more clearly the problematic nature of
Chinese growth dynamics (for working people both inside and outside of China). During
the Mao era, China made significant industrial and technological strides,
largely though its own national efforts.[36]
However, China’s current position as final assembly hub within numerous
cross-border production chains has significantly weakened the country’s efforts
at technological upgrading.

While early reform initiatives promoting the decentralization
of production did stimulate new economic dynamism, the gains have largely been
undermined by the negative consequences of later reform policies which
encouraged foreign integration and domination of key manufacturing activities.[37]
This outcome is highlighted by Lee Branstetter
and Nicholas Lardy, who describe China’s technological situation as follows:

(T)he rapidly changing commodity
composition of China's exports does not appear to constitute evidence that
Chinese firms are leapfrogging ahead technologically, because these exports are
not primarily driven by the expanding ‘knowledge stock’ or innovative
capabilities of domestic firms. … Furthermore, there is evidence suggesting
that many indigenous Chinese firms spend little on research and development to
develop new technologies on their own.[38]

Surveying
China’s situation five years after the country’s 2001 accession to the WTO, the
Chinese economist Han Deqiang recalls that he had ‘argued the greatest damage
[of membership] would be to China's capacity to control its industrial and
technological development autonomously. I think it's safe to say these last
five years have more than proven that true. In China, any industry that wants
to develop its own technology or markets has encountered increasingly great
barriers.’[39]

Business Week
provides supportive evidence for this negative assessment, noting that ‘experts
familiar with highly touted Chinese achievements such as commercial jets and
high-speed trains say the technologies that underpin them were largely
developed elsewhere.’ China exported $416 billion worth of high-tech goods in
2008, ‘but subtract the mainland operations of Taiwanese contract manufacturers
and the likes of Nokia, Samsung, and Hewlett-Packard, and China is an
electronics lightweight. ... [M]ost mainland companies mine existing
technologies and compete on high volume and low cost in commodity goods.’[40]

More
problematic still, is the fact that in order to maintain the country’s key
regional position in the face of competition from other countries seeking to
improve their own position within cross-border value chains, the Chinese state
has had to ensure that wages are kept low and productivity high. One
consequence of its success is that transnational corporations throughout East
Asia (and elsewhere) have been shifting their production to China. This has led
to lower rates of investment and growth throughout the region and the
implementation of new labor regimes designed to weaken labor protections. As a
result, workers throughout East Asia (and elsewhere) have become pitted against
each other in a contest to match the level of labor exploitation achieved in
China.[41]

The most visible and immediate problem is that China’s
growth dynamics (and thus the region’s production) have become highly dependent
on the ability of the US to run ever greater trade deficits. While most
analysts thought that such a weakness was either hypothetical or of only future
concern, events have proven them wrong.

The US officially entered recession in December 2007. Steadily
deteriorating economic conditions eventually produced a sharp contraction of
credit, rapid increase in unemployment, and steep decline in consumption. Given
the integrated nature of the global economy, US economic problems were quickly
transmitted throughout the world, helping to push both the European Union and
Japan into recession as well. The World Trade Organization has predicted that
world merchandise trade will decline by 10 per cent in 2009.[42]

Given its export dependence, China was quick to experience
the consequences. Exports fell, causing a spike in unemployment, a decline in
industrial profits, and a slowdown in growth. Recognizing the dangers of
inaction, the Chinese government initiated a $585 billion stimulus plan in
November 2008 and pushed state banks to aggressively make loans. The results
have been impressive: in the first half of 2009, the Chinese economy recorded a
rate of growth of 7.1 per cent, with state directed investments accounting for
6.2 percentage points of the growth.[43]
Many analysts believe that this growth record demonstrates both the enormous
capacities of the Chinese state to successfully guide the economy and the
stability of China’s high-speed growth strategy. Unfortunately there are strong
reasons to reject this optimistic assessment.

Although recent GDP gains in the G-3 countries suggest that
the world recession may be ending, there is no obvious engine of growth to
support a sustained recovery and, by extension, a renewal of past global
economic dynamics (and imbalances).[44]
For example, the US economy registered positive growth in the third quarter
2009 thanks to a government stimulus program and aggressive monetary policy. However,
government actions have, by design, done little to transform the structural
underpinnings of the economy. In particular, labor market conditions remain
dire and there is little reason to expect that the recovery (even if sustained)
will produce significant job creation or an increase in earnings.[45]
Therefore, as the effects of the stimulus dissipate, the US economy is likely
to sink back into recession or at best remain stagnate for years to come.

Aware that such an outcome poses a serious threat to China’s
long run growth prospects, many analysts have encouraged the Chinese government
to take steps to reorient the economy away from its current export dependence. This
is far from an easy transformation, and would involve major structural changes
with significant political and social consequences. As one economist explains:

Entire export industries will have to be retooled to serve
domestic sectors. Retooling, say, factories in Shenzhen from assembling iPods
and mobile phones towards products that Chinese consumers would buy would
require a long process of reconfiguring supply chains across Asia, affecting,
among other things, semiconductor production in Taiwan, memory production in
Korea, and hard drive production in Singapore.[46]

It appears that the
Chinese government has little interest in promoting such a transformation. Rather
its policies have been designed to maintain the status quo. In line with this
aim, government stimulus spending has largely been directed at large scale,
capital intensive infrastructural projects (rail, roads, airports), which
support growth while producing largely unneeded and expensive facilities and
few jobs.[47]

Even more striking
has been the expansion of state loan activity; in the first half of 2009, state
banks loaned three times more than in the same period in 2008.[48]
Approximately half of the loans have gone to finance property and stock
speculation, raising incomes at the top while fueling potentially destructive
bubbles. Much of the other half has gone to finance the expansion of state
industries like steel and cement, which are already suffering from massive
overcapacity problems.[49]

It is difficult to know how long the Chinese government can
sustain this effort. Property and stock bubbles are worsening. Overcapacity
problems are driving down prices and the profitability of key state
enterprises. Both trends threaten the health of China’s already shaky financial
system.[50]

Perhaps more threatening is the deepening mass resistance to
existing social conditions. The number of public order disturbances continues
to grow, jumping from 94,000 in 2006 to 120,000 in 2008, and to 58,000 in the
first quarter of 2009 (on pace for a yearly record of 230,000).[51]
The nature of labor actions is also changing. In particular, workers are
increasingly taking direct action, engaging in regional and industry wide
protests, and broadening their demands.[52]
While this development does not yet pose a serious political threat to the
Chinese government, it does have the potential to negatively affect foreign
investment flows and the country’s export competitiveness, the two most
important pillars supporting China’s growth strategy.

The Chinese government’s determination to sustain the
country’s export orientation means that it can do little to respond positively
to popular discontent. In fact, quite the opposite is true. In the current
period of global turbulence the government finds itself pressured to pursue
policies that actually intensify social problems.

Although China has suffered a significant decline in
exports, it has done far better than most other countries; it actually
surpassed Germany in 2009 to become the world’s biggest exporter. China’s gains
have come largely because it is ‘winning a larger piece of a shrinking pie.’ In
other words, although selling less than the previous year, China has raised its
import share in both the US and Europe by taking market share from other
countries.

The reason is that hard pressed consumers seek lower cost
goods and, as the New York Times
points out, ‘Beijing, determined to keep its export machine humming, is finding
a way to deliver.’ Delivering in this context means that the Chinese government
is doing whatever necessary to ensure the ‘ability of Chinese [based]
manufacturers to quickly slash prices by reducing wages and other costs in
production zones that often rely on migrant workers.’[53]
This includes rolling back recently approved labor protections, as highlighted
above. Regardless of whether Chinese state policies continue to prove
successful in promoting China-based exports, it is difficult to see how its
efforts contribute to the creation of a more humane and stable global economic
system.

In sum, the market logic driving China’s reform strategy
promoted an economic transformation that allowed Chinese economic dynamics to
become enmeshed in a broader process of transnational restructuring, one that
accelerated the reforms in ways guaranteed to ensure the dominance of
capitalist imperatives in China. As a result, far from opening up new
possibilities for working people, China’s reform strategy has actually ended up
strengthening a highly exploitative and unstable transnational accumulation
process.

Final thoughts

Several
conclusions emerge from the above examination of the Chinese experience. First,
China’s market reform process has led not to a new form of (market) socialism,
but rather to the restoration of capitalism (although ‘with Chinese
characteristics’). Concretely, the Chinese growth process has given rise to a
new political economy that is hostile to the goals of socialism: the promotion
of all-rounded human development; solidaristic relations; cooperative planning
and production for community needs; and collective or social ownership of
productive assets. Thus, the Chinese experience stands as a clear warning:
socialism cannot be built through the use of markets and a closer integration
with global capitalist accumulation dynamics.

Second,
China’s economic experience reveals much about the nature of contemporary
capitalism. China is considered a model developer; the country has achieved a
sustained and rapid rate of growth, attracted massive inflows of productive
capital, and is exporting ever more sophisticated manufactured goods. Yet,
these accomplishments have not translated into meaningful gains for growing
numbers of Chinese workers. In fact, workers in China face living and working
conditions increasingly similar to those in Latin America and Africa, regions
where most countries are considered development failures. Therefore, it appears
that the answer to worker problems in Africa, Latin America, and elsewhere for
that matter, is not to be found in supporting policies designed to achieve
‘successful’ capitalist development, especially those designed to replicate the
Chinese experience.

Third,
China’s growth trajectory has become tied to and dependent upon existing
accumulation processes shaped by transnational capitalist dynamics. As a
result, China cannot be counted on to assist in the creation of a radically new
economic system. This does not mean that trade with China is to be avoided. It
also does not mean that Chinese elites and western (especially US) elites see
eye to eye on all geopolitical issues. Capitalist competition is real and
differences between these elites can and often does create openings that are
helpful for other countries, especially those in the third world. At the same
time, since Chinese elite interests are structurally shaped by capitalist
imperatives, there are limits to the types of changes that Chinese leaders can
be expected to support.

Growing
numbers of people in China are openly and directly challenging their country’s
growth strategy. Even more noteworthy, these challenges are now fueling
political discussions and debates (many of which are taking place on electronic
chat rooms and bulletin boards) about the nature and significance of Mao era
experiences and socialism.[54]
To this point, farmer and worker participants appear focused on refuting the
false claims of ruling elites that the Mao period was both a social and
economic disaster by drawing on their own life experiences to illustrate the
accomplishments of that period, in particular employment and social security
and a sense of national purpose.

This
process of political renewal is taking place under very difficult conditions
due, most importantly, to the ongoing repression of grassroots organizing and
activism by the Communist Party. Additional challenges include tensions between
immigrant and urban born workers over jobs and access to social services; confusion
caused by Chinese Community Party claims to be building socialism; and the fact
that the strongest resistance to Party policies comes from those that continue
to uncritically praise Maoism, despite the fact that Mao generally opposed
farmer and worker self-organization and direct participation in political and
economic decision-making. Despite their current limitations, these struggles, discussions,
and debates represent a promising development. It makes our own efforts to
better understand the nature of the Chinese reform experience ever more
important.

[Martin
Hart-Landsberg is a professor in the Department of Economics, Lewis and Clark
College, Portland, Oregon 97219 USA.]

Athukorala, Prema-chandra. 2007. ‘The Rise of China and East
Asian Export Performance: Is the Crowding-out Fear Warranted?’ Australian National University, Division
of Economics. Working Paper No. 2007/10.

Athukorala, Prema-chandra and Nobuaki Yamashita. 2008.
‘Patterns and Determinants of Production Fragmentation in World Manufacturing
Trade’ in Globalization, Regionalization
and Economic Interdependence, edited by Filippo di Mauro, Warwick McKibbin
and Stephane Dees. Cambridge: Cambridge University Press.